With competitive ruin looming, energy policy needs a brand new start

It’s only right and proper that politicians should have their say but to be
treating energy providers as a political football when there is already an
independent investigation by regulators going on is extraordinarily
irresponsible

Seattle, where BMW has sited state-of-the-art production facilities because energy prices there are much lower

What passes for energy policy in the UK took another turn for the worse yesterday when Ed Davey, the Energy Secretary, waded into the debate about energy prices by suggesting that both Centrica and SSE are profiteering from gas sales and should possibly be broken up.

It’s only right and proper that politicians should have their say but to be treating energy providers as a political football when there is already an independent investigation by regulators going on, and at a time when we desperately need rational debate over the trade-offs between affordability, reliability and the environment, is extraordinarily irresponsible.

The political opportunism of the opposition leader, Ed Miliband, in promising to freeze prices is one thing but Mr Davey is a senior member of the Government and should understand the damage his interventions do better than any.

Few will invest in a market where what little political certainty there was is being cynically squandered in pursuit of the populist vote.

Evidence of an investment strike grows by the day. We may be just years away from brown-outs and other emergency measures to ration energy use, so serious is the looming deficit in supply.

This is not just a British problem; it is European wide. Right across the EU, an ill-managed rush to renewables is causing energy prices to sky rocket.

Perversely, it is also causing coal-fired electricity generation to come roaring back in a desperate bid to plug growing gaps in supply. As a consequence, emissions are going up rather than down.

With energy, one disastrous government intervention piles in on top of another, if only to undo the unhappy consequences of the last one.

Europeans have turned their energy markets into a recipe for competitive ruin, a warning to all of the dangers of well-meaning, but utterly counter-productive, government instruction.

In its last World Energy Outlook, the International Energy Agency warned that Europe could lose a third of its global share of exports from energy intensive industries because of price disparities with the US and the rest of the world (see chart).

Europe’s refusal to embrace shale, together with Germany’s repudiation of nuclear power, is threatening competitive decimation of once-thriving industries.

Even 10 years ago, it would have been inconceivable for BMW to site state-of-the-art production facilities anywhere other than Bavaria. Today, the previously inconceivable is par for the course. The company’s global carbon fibre plant is located in Seattle, where energy prices are much lower.

Some industrialists complain that the situation in the UK is, if anything, even worse. Despite Mr Davey’s protests, retail energy prices in Britain are among the lowest in major European economies, even if they seem fast to be catching up.

With industry, it is the reverse; thanks to the Government’s various green initiatives, prices are already some of the most expensive.

Tata Steel, the remnants of the once mighty British Steel, complains of energy prices which are up to 50pc higher than similar facilities in Germany and France. The carbon floor price is set to make the disparity greater still.

Without some kind of breakthrough technology, Tata cannot realistically make its blast furnaces any more energy efficient than they already are. Yet still they struggle to compete under the cosh of European and UK environmental levies - a double whammy of cost.

There was talk of mitigating the UK carbon floor price for energy intensive industries but it has become stuck in labyrinthine European rules on state aid.

These don’t seem to stop the Germans, who load the punishing costs of their renewables programme on to retail consumers in an effort to protect the country’s industrial base.

This, too, is under threat from the busy-bodies of European harmonisation. Even Germany is being forced to learn the perils of sovereign subservience to the pipedream of European federalism.

The irony is that if unduly onerous energy levies force the likes of Tata to close, it will do nothing to ease emissions. Production will merely shift to less efficient plants in Asia and America.

At the World Economic Forum last month, David Cameron made the idea of “on-shoring” by a supposedly ever more competitive UK economy the centre piece of his speech. Good luck with that.

Europe is gripped by a kind of collective insanity from which there appears no escape. Next month, heads of government are holding a summit to discuss Europe’s proposed road map to a low carbon economy.

Will any of them speak up? Don’t hold your breath. Into this madhouse steps Mr Davey, apparently determined to prove that there is no mess quite so bad that he cannot make even worse.

To be honest, it’s hard to see why he bothered, even as a counter to Labour. To claim that some providers sustain relatively high margins on gas sales – which incidentally regulators should be well aware of, since it is they who originally compiled and published the data – and threatening to break them up, hardly matches Ed Miliband’s promise to freeze prices.

This is not so much shooting Labour’s fox, as ineffectually chasing a fox that’s already got away.

It is small wonder that energy renewal is falling so far short of where it should be. No one can make a sensible investment decision in this environment. You’d be mad to invest in wind or other forms of renewables while uncertainty persists over what Ed Miliband’s threatened price freeze means for subsidies.

Spain, which has substantially cut subsidies because of popular pressure for lower prices, is a salutary lesson on what happens when governments break their promises on prices.

Investment simply grinds to a halt. Likewise, you’d be mad to invest in gas generation as long as there is no certainty over how many wind farms are going to be built.

The investment cycle for energy is much longer than the electoral one. It requires long term planning and regulatory certainty, but the politicians keep on shifting the goal posts.

Mr Davey promises affordability, reliability and a low carbon economy all at the same time; in truth he’s failing on all three measures.

Further boosted by the Danegeld we’ll be paying EDF to build a monstrous new nuclear power station at Hinckley Point, prices will carry on going up, security down, and we’re even struggling to make headway on emissions.

Mr Davey had to be dragged kicking and screaming into taking shale seriously, and even then the Government has managed to cock it up.

Almost unbelievably, the well-heeled countryside Right stands shoulder to shoulder with the penniless environmental Left in opposing it, ensuring years of political and regulatory obstruction.

The Government has hopelessly failed to carry the country with it.

In a recent presentation to the Centre for Global Energy Studies, Lord Howell, an Energy Secretary in the Thatcher Government, called for an immediate change in direction.

“We need a fresh start for UK energy policy – one that delivers affordability rather than soaring bills, helps competitiveness rather than holding Britain back, promises reliability instead of power shortages and green advance instead of green pain and environmental damage”.

Quite so. There is, unfortunately, very little chance of a hearing from Mr Davey.